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Is It Over Yet?

Economics as Science

Caroline Blaum wrote a recent piece for Bloomberg arguing that economists should stop pretending to be scientists. Or, rather, that they should acknowledge that what they practice isn’t science. If science means accruing knowledge through experiment-based discovery, economics (or at least 99% of it) surely isn’t a science.

However, Blaum’s article illustrates a tendency to put science on a strange pedestal. To be sure, the scientific method is the greatest cognitive tool ever created. But in trying to dismiss a field by saying it’s not science, we aren’t being honest about other methods of knowledge-accrual.

Blaum lists many questions whose answers are either currently unknowable or at the very least don’t enjoy consensus among experts.

1. What is the expected rate of economic growth in conjunction with a 4 percent federal funds rate?
2. What is the effect on inflation of a 300 percent increase in the monetary base?
3. What is the effect — the multiplier — of a $1 increase in government spending on output?
4. What is the nonaccelerating inflation rate of unemployment, or the jobless rate that triggers rising prices?
5. What is the wealth effect from a 20 percent increase in the major stock indexes? What about a 100 percent increase?

The answer to all five questions is, it depends. And that’s one of the main reasons that economics isn’t, and will never be, a science.

We know the physics behind a baseball very well, but a physicist couldn’t tell you exactly where a given fly ball will land at the moment it’s hit. This is what we’re expecting of economists and it’s unreasonable. Of course “it depends”. That phrase is really just an acknowledgement that the question asked doesn’t contain enough detail to have only one answer, and I’d wager “it depends” is the same answer a physicist would give to a fly ball question without more information about the system involved. A model insufficiently detailed for reality is an insufficient model to predict reality.

Isaac Newton, the English physicist, mathematician and philosopher, pretty much explained the fundamental difference between economics and the hard sciences more than 300 years ago. With the physical sciences, we observe what happens in nature. Then we try to quantify it. An apple falls from the tree to the ground with increasing velocity.

Notice the opaque phrasing of the famous falling apple example, boiling it down to its most basic point. Newton, after all, got the details wrong. Newtonian physics are a nice approximation of reality but really only apply sufficiently to mundane problems. Eventually, humans started operating on scales of time, space, and precision that showed a more complex picture. Today, numerous technologies we interact with daily wouldn’t be possible without an understanding of relativity and quantum mechanics. Obviously, knowledge in any field is cumulative, which means that at any snapshot in time it is never complete.

The examples that Blaum uses are attempts to generalize incredibly complex systems, and it’s understandable for that to be problematic and open to multiple interpretations. Even the best natural experiments that economists can use are only approximations of what they’d like to design in a lab.

Time matters in experimentation. Whereas with physical sciences a given experiment can be run again and again, economists tries to explain actions and behaviors on a time scale that prohibits this and about a system that is unimaginably complex. Economists are also part of the systems they try to explain, which is bound to lead to some odd self-referential system effects.

Such systems require exponentially more work to understand than simple systems. A physician would be helpless in answering any of her economics questions despite every interaction conceivably relevant to the question involving simple physics between simple particles. It would be too complex for any science to answer.

Economics isn’t a science, but that doesn’t mean that there isn’t an accrual of knowledge. There is a good amount of consensus on, granted, pretty basic points. For example: when a good increases in cost, customers demand less of it. To me, that sounds a lot like “an apple falls from the tree to the ground with increasing velocity”. Give economists time to work out the details.